Platinum strike expected to slow growth

May 26, 2014

Johannesburg (May 26)  South Africa’s economy has come a long way since plunging into recession in 2008 when its closest trading partners in the developed world faced the same fate.

The first quarterly economic growth decline was recorded in the fourth quarter of 2008 when economic growth fell a seasonally adjusted and annualised 1.7%.

The negative growth continued into 2009, when declines of 6.3% and 2.7% were recorded in the first and second quarters of that year.

The consequences of declines in growth for a small and open economy like South Africa are enormous.

Many people become unemployed when the economy fails to grow and they end up joining the ranks of the already high number of those languishing in poverty.

The economic growth declines of 2009 saw the government and central bank face one of their toughest challenges yet, which was taking the economy out of recession. The Treasury increased spending, while the South African Reserve Bank cut interest rates over a period of time.

The combination worked and the economy slowly emerged from the doldrums, growing 1.7% in the third quarter of 2010.

But the country has come to a point where this support cannot continue indefinitely. Fiscal and monetary policies have started being gradually tightened to allow the local economy to stand on its own in line with a continuing recovery in the global economy.

The Treasury is focusing on limiting spending while the Bank increased interest rates by 50 basis points in January with more rate hikes expected to come.

The challenge the domestic economy faces now is that economic growth is moderating when it should be doing the opposite.

Global demand is slowly improving, which should imply slightly higher demand for South African goods such as minerals and manufactured goods such as vehicles.

But local dynamics, most notably strikes, are stopping the country from fully benefiting. It is the same strikes that threaten to see South Africa return to the negative economic growth last seen in 2009.

Economists estimate that the four-month strike at platinum mines and its spillover to other sectors such as manufacturing will be the main reason behind a 0.4% decline in economic growth in the first quarter of this year. This figure was a median consensus forecast from a BDlive survey conducted among 14 economists.

Statistics South Africa will release the data on Tuesday.

The strike has also started reflecting in the local trade data given that platinum group metal exports make up a significant portion of exports, which are also a key revenue earner.

The South African Revenue Service will release the trade data, which include South Africa’s trade with Botswana, Lesotho, Namibia, and Swaziland, on Friday.

A BDlive median consensus forecast from a survey of eight economists was for the trade balance to have recorded an R11bn deficit last month after an R11.4bn deficit in March.

Deterioration in the trade balance implies that the current account deficit will remain large, which will cause rand weakness.

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